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Property Tax Resources

May
24

Don’t Ignore Business Personal Property Taxes

Blas Ortiz and Andrew Albright of Popp Hutcheson PLLC offer tips for decreasing liabilities.

For property tax purposes, commercial property owners concern themselves primarily with the administrative appeals and real estate taxes, while often ignoring corresponding business personal property. By doing so, those owners forfeit many tax-saving opportunities when complying with state filing requirements for and appealing taxes on business personal property. Since the majority of states tax business personal property in some form or fashion, commercial owners should follow several tax saving tips when preparing annual compliance filings.

Conduct the personal property test

Commercial property owners must realize that personal property tax savings begin during the compliance phase when formally rendering personal property value to the local assessor. This typically starts with what is reflected on the fixed asset list. In many states, taxable personal property represents anything that's not real estate, is income-producing, and not considered intangible. Generally speaking, the primary test to determine whether an asset is personal property rests on the answer to the following question: If the asset were removed from the real estate, would the real estate be irreparably damaged? A yes answer means the asset would likely be real estate. Removing real estate line items becomes crucial. Otherwise it amounts to double taxation if an asset more appropriately characterized as real estate also gets taxed as personal property. Properly delineating each asset line item as personal property or real estate is a vital first step to lowering personal property taxes.

Classify assets properly

Taxpayers will find that proper asset classification holds another key to decreasing tax liability. Certain assets may be depreciated on shorter age-life schedules if described and classified properly when reported to the business personal property assessor. The North American Industry Classification System, along with various cost estimator and valuation services provide general classification and age-life guidance when finding acceptable depreciation schedules for a company's fixed assets. A local property assessor or state department of revenue may also provide personal property classification and depreciation schedules, though it may not always be clear how that information was derived. If applicable, include potential obsolescence factors that may affect the final opinion of value. Many states periodically audit tangible personal property returns, so be prepared to explain any deviation from the assessor's depreciation schedules and the inclusion of obsolescence or inutility factors.

Understand depreciation

Commercial owners must also keep in mind that the net book value of assets on a fixed asset list, although pertinent for accounting purposes, is not considered when calculating ad valorem property tax liability. Accounting guidelines allow for depreciating assets differently than property tax depreciation. For accounting purposes, an asset is usually depreciated at a set amount each year over the asset's total typical life until it depreciates to $0. Those items often remain on the books even if the assets have been disposed of because they no longer have accounting value and, therefore, do not impact the overall book value.

However, for property tax purposes, assets are never fully depreciated to $0 value. Instead, they are depreciated to a residual value anywhere between 5 percent to 20 percent of the original cost. That being the case, when reporting assets, the preparer may look to the local assessors' asset depreciation schedules to determine each asset's depreciated value based on the asset's current age. As a corollary to that, the preparer should also confirm whether any disposed or "ghost assets" remain on the books, and if so, remove them from the fixed asset list before rendering.

Consider intangibles

The removal of intangible property continues to be a fundamental step often overlooked when reviewing fixed asset ledgers for the purpose of filing self-reported personal property renditions and returns. In certain states, items such as software and warranties are nontaxable. While being mindful of each state's specific guidelines for intangible property, consider embedded intangibles which might be identified within an asset's total capitalized cost. Removing intangible personal property line items, in accordance with state and jurisdictional laws and guidelines, can preserve potential front-end tax savings for many years.

File properly and on-time

Knowing when to report is just as important as knowing how to report. To avoid late filing penalties, be aware of the filing requirements and methods for each specific jurisdiction, such as postmark and submission deadline rules. Be aware that many assessors and appraisal districts are shifting to electronic filing vs. traditional hard copy filing. Additionally, be certain to properly identify the property by identification number, owner name and address.

Business personal property should not be ignored when determining a company's property tax liability. Following consistent and informed methodologies when filing tangible personal property compliance can create viable tax savings opportunities year after year.

Andrew Albright
Blas Ortiz
Blas Ortiz is a director and Andrew Albright a manager at Popp Hutcheson PLLC, the Texas member of American Property Tax Counsel, the national affiliation of property tax attorneys. The firm focuses its practice on property tax disputes.
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May
21

Texas Extends Lucrative Tax Incentive

Program is designed to help entice companies and developers to the state.

Economists anticipate unprecedented capital investment in Texas over the next few decades, and tax jurisdictions in Texas are no doubt eager to take advantage of this influx of capital. Increasing property tax rates and limited manufacturing and construction resources have hampered Texas' economic development efforts on the ever-competitive national stage, however.

So, in the spirit of the Texas Economic Development Corp.'s "Texas Wide Open for Business" marketing program, lawmakers have extended two of the state's most popular and lucrative tax incentives programs in order to entice companies and developers here. Those incentives are property tax abatements and a program to temporarily limit increases on the appraised value of capital investments at properties taxed by school districts. Many companies have already discovered that the best way to reduce the property tax burden during early project investment years is through local property tax incentives. But what do these programs offer, and who should  use them?

The recently renewed Chapter 312 of the Texas Property Tax Code, also known as the Property Redevelopment and Tax Abatement Act, allows the taxpayer and local taxing unit to create agreements exempting all or part of an appraised property value increase from taxation for up to 10 years.

This incentive promotes economic development in the state through major capital investment, job creation, job retention and the utilization of existing local vendors. Property owners often seek abatement incentives for projects ranging from retail shopping centers and distribution warehouses to natural gas processing plants and wind farms. Local taxing units that wish to provide property tax abatements must state their intent to provide the incentive, and then adopt abatement guidelines and criteria. Typically, abatement guidelines and criteria reflect the specific needs of the taxing unit. Therefore, abatement guidelines and criteria, such as minimum investment amounts and/or the number of jobs to be created, often vary from county to county. A company considering investment in Texas should research proposed sites in advance to confirm that the potential project meets local abatement guidelines and criteria.

The Texas Legislature reauthorized the use of property tax abatements until Sept. 1, 2019. In 2001, the 77th Texas Legislature  enacted House Bill 1200 Creating Texas Tax Code Chapter 313, the Texas Economic Development Act. Under Chapter 313, a qualified applicant may apply to a school district for a limitation on the appraised value of their new capital investment project for 10 years. The limitation on the appraised value applies specifically to the school district's maintenance-and-operations tax rate, while its interest and sinking tax rate; or bond rate, applies to the full taxable value of the property. This program allows Texas school districts to increase their ad valorem tax bases by attracting large-scale capital investments, and creates desirable, well-paying jobs in the process. Recently, the 83rd Legislature extended the Chapter 313 Act through 2022 and added various rule changes, including the extension of the value limitation from eight to 10 years, and the inclusion of contractor jobs as counting toward job creation requirements for a project.

The Texas Comptroller's Economic Development & Analysis Division, however, is now required to verify that an eligible project will generate sufficient tax revenues over a 25-year period to offset the school district's maintenance-and-operations tax revenues lost as a result of entering into the value limitation agreement. Additionally, the Comptroller must also find that the value limitation incentive is a determining factor in the applicant's decision to invest capital and construct the project in Texas. Reviewing any potential incentive project with an experienced tax professional; offers the best opportunity to create an effective property tax strategy.

Blas Ortiz jpgBlas Ortiz is a tax consultant with Texas law firm of Popp Hutcheson PLLC. The firm devotes its practice to the representation of taxpayers in property tax disputes and is the Texas member of the American Property Tax Counsel (APTC), the national affiliation of property tax attorneys. Mr. Ortiz can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..

 

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